What You Need To Know About Nigeria’s New Startup Act -By Oyetola Muyiwa Atoyebi & Nnamdi Okoronkwo
On Wednesday,10th October, 2022, President Muhammadu Buhari signed the Nigeria Start-up Act into law. On the same day, the news was announced via a tweet by Nigeria’s Minister of Communication and Digital Economy, Dr. Isa Pantami. He also further stated that the Act came about as a result of the collaboration between the Office of the Chief of Staff and the Office of the Minister of Communications and Digital Economy.
Last May, the Nigerian presidency launched the Nigeria Start-up Bill in collaboration with a group of Nigerian tech leaders and several government bodies, to govern how start-ups and regulatory bodies operate and collaborate in the multi-billion-dollar tech ecosystem.
The bill aims to improve the tech ecosystem, and it is particularly timely when one considers the rise of the fintech industry. The acceleration of Fintech services in Nigeria and even Africa at large, has become an eye-catching prospect as investors are ever ready to maximize the realistic potential in the sector. The Nigerian start-up Bill proposes to create such enabling environment for every technology-enabled product or service to thrive. To understand how this will be achieved, it is necessary to consider notable provisions of the Nigerian start-up Bill.
BRIEF TIMELINE OF THE ACT
According to the Start-up Bill’s (Now Act) website, the following timeline was proposed:
- JUNE 2021: Harmonize Existing Laws/regulation and Feed inputs to legal framework from key ecosystem leaders (MDAs, States, Networks).
- JULY 2021: Ecosystem leaders and representatives review the first draft as well as the Presidential Working Group composed of MDA decision-makers critical to implementing components of the bill.
- AUGUST 2021: Presidential Announcement and Town Hall meetings take place for public consultation and validation of the second draft of the bill with ecosystem stakeholders at the state level in all geopolitical zones.
- SEPTEMBER 2021: Drafting teams take all the inputs and make revisions to feed into the final bill.
- OCTOBER 2021: Bill is submitted to the President who then submits Executive Bill to the National Assembly.
- DECEMBER 2021: Bill is sent to the National Assembly
- JUNE 2022: National Assembly Public Hearing of the Bill
- JULY 2022: The National Assembly passes the Nigerian Start-up Bill.
OBJECTIVES AND SCOPE OF THE ACT
According to its draft last year, the Bill seeks to tackle three main challenges for Nigerian start-ups: Lack of an enabling environment, unclear regulatory framework and inadequate local content support. The Act also aims to position Nigeria’s start-up ecosystem as the leading digital technology center in Africa, having excellent innovators with cutting-edge skills and exportable capacity. Other content of the Nigeria Start-up Bill includes pushing for protection and incentives, like tax breaks, incentives to attract foreign capital and access to an exclusive list of public and private-led local funding opportunities including a ₦10 billion fund from the federal government .
The Act applies to companies incorporated under the Companies and Allied Matters Act, 2020 and grants the start-up label in accordance with the provisions of the Act. The Act also applies to organizations and establishments whose activities affect the creation, support and incubation of labeled start-ups in Nigeria.
STARTUPS IN NIGERIA
As of September 2022, at least 481 Tech startups were in operation across Nigeria, employing over 19,000 people between them. Fintech is the most populated sector with more than one-third of the country’s tech startups active in that vertical. Almost 50 percent of Nigerian Tech startups have undergone some form of acceleration or incubation, although diversity is an issue as less than 15.6 percent have a female co-founder.
These startups are also supported by a strong investment ecosystem. At least 383 individual Nigerian tech startups raised a combined US$2,068,709,445 in funding between January 2015 and August 2022, more than any other country in that period. Funding, both in terms of the number of start-ups backed and the total tally secured, has generally increased year-on-year, with total investment increasing more than four-fold between 2020 and 2021, and on course for a further big leap in 2022.
It is this backdrop that the new Act dictates and defines which businesses fall under the aegis of “Start-up”.
START UP LABEL
The new Act in Section 13, provides for a start-up label. This is a label issued to a start-up by the National Information Technology Development Agency.
In order for a company to be labeled a start-up under the Act, it must fulfill the following requirements:
- It is registered as a limited liability company under the Companies and Allied Matters Act 2020, and has been in existence for a period of not more than 10 years from the date of incorporation.
- Its objects are innovation, development, production, improvement, and commercialization of a digital technology innovative product or process.
- Itisa holder or repository of a product or process of digital technology, or the owner or author of a registered software.
- I tha sat least one Nigeria as a founder or co-founder of the start-up, provided that the Nigerian founder or co-founder will share from profit or revenue from the sale of shares.
- In the case of a sole proprietorship or partnership, it satisfies the conditions set out in Paragraphs(b),(c)and(d)of this subsection.
Accordingly, labeled start-ups are required to carry out the following actions:
- Comply with all the extant laws governing businesses in Nigeria.
- Provide information annually on the number of human resources, and total assets.
- The annual turnover achieved from the period the start-up label was granted.
- Maintain proper book of accounts in accordance with reporting obligations provided under extant laws and regulations.
- Provide an annual report on incentives received and advancement made by virtue of the incentives.
- Notify the Coordinator of any change in structure, composition or objects with in a period of one month from the date of such change.
- Comply with the obligations set out by the Coordinator after issuance of the Start-up label.
KEY HIGHLIGHTS OF THE BILL
The notable highlights of the bill include:
a) Nationality of the start-up: The Bill provides that the company should be incorporated in Nigeria and have its headquarters in Nigeria.
b) Objective of the start-up: The Bill provides a wide range of objectives which include innovation, development, production, improvement and commercialization of innovative products.
c) Lifespan: To qualify as a start-up in the bill and have access to the incentives, the company should have existed for not more than ten (10) years in Nigeria.
d) Products: The Bill targets the Tech ecosystem of Nigeria. The bill provides that the goods and services offered by a start-up company should involve new technology or at least be technology-enabled.
The Bill also proposes that Ministries and Agencies of Government set a 15 per cent margin of preference for start-ups when the agencies procure technology-related products.
e) Shareholding of the company: The Bill aims to promote Nigeria’s economy by encouraging Nigerian-based start-ups. As a result, the Bill provides that at least 51 per cent of the Start-up shares should be held by Nigerians.
This provision does not limit foreign participation. Companies in which foreign participation exceeds 49 per cent can still qualify as a start-up where the ultimate beneficial owners of its foreign corporate shareholders are Nigerian citizens.
The Nigeria Start-up Act gives every state in the federation the opportunity to build a thriving tech ecosystem aligning with the vision of the Act towards entrepreneurship, innovation and economic growth, whilst taking into account local nuances and context of the state. Thus, the key to unlocking the opportunities and growth created by the Act lies in its adoption and implementation across all 36 states.
The hope is that the new Act improves Nigeria’s tech ecosystem in the near future.
The Start-up Act also aims to position Nigeria’s Start-up ecosystem as the leading digital technology center in Africa, having excellent innovators with cutting-edge skills and exportable capacity. Other content of the Nigeria Start-up Bill includes pushing for protection and incentives, like tax breaks, incentives to attract foreign capital, and access to an exclusive list of public and private-led local funding opportunities, including a ₦10 billion fund from the federal government.
Key terms: start-up bill, start-up act, fin-tech, start-up ecosystem
Mr Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of OM Atoyebi, SAN & Partners (OMAPLEX Law Firm).
Mr. Atoyebi has expertise in and vast knowledge of Corporate Law Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions. He holds the honor of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.
He can be reached at [email protected]
CONTRIBUTOR: Nnamdi Okoronkwo
Nnamdi is a member of the Dispute Resolution Team at OMAPLEX Law Firm. He also holds commendable legal expertise in Corporate Law Practice
He can be reached at [email protected]
Nigerian Startup Ecosystem Report 2022, Disrupt Africa.
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